For Club Trader Traders: Morgan Stanley has revised its expectations. No more hikes from the ECB

Morgan Stanley said they believe the ECB’s rate hike is over, given the current week’s economic releases. This is a significant change in the bank’s stance, having previously expected a final rate hike this month.
-Slowing services inflation and deteriorating economic fundamentals significantly alter the outlook for interest rates, according to Morgan Stanley

Data this week showing a slowdown in services inflation in the eurozone, followed by signs of a rapidly deteriorating economy, is likely to tip the scales in favor of an interest rate pause at this month’s ECB meeting.
“We are revising our expectations for the ECB’s next move and expect a pause in September,” the investment bank said. “We now see the terminal rate at 3.75%.”

Such scenarios also reflect the latest expectations of money markets, with traders reducing the odds of a hike to just over 20%, but there are still bets on another rate hike by the end of the year, with the odds of a hike at the end of October still above 25 %

The bank believes the macro is turning particularly favorable for real yields – which strip out inflation, given the “diminishing risk of persistent inflation as we approach the end of the ECB’s tightening cycle”. Morgan Stanley is rebalancing its debt exposure by increasing its holdings of French inflation-linked debt maturing in 2031.